IU study: Spending on national security has $8.3 billion impact on Indiana

BLOOMINGTON, Ind. -- Defense spending's impact on the Indiana economy has more than doubled in the past decade. More than 1,100 Hoosier companies were successful in attracting $4.4 billion in contracts from the U.S. departments of Defense (DoD) and Homeland Security (DHS) in 2010, supporting an estimated 38,600 Indiana jobs.

A new report released today (Oct. 6) by the Indiana Business Research Center (IBRC) at Indiana University's Kelley School of Business also found that the ripple effects from these defense contracts generated another $3.1 billion, for a total of $7.5 billion in combined economic benefit to the state.

When the payrolls for DHS personnel and DoD employees at military facilities such as Crane Naval Surface Warfare Center, Camp Atterbury Joint Maneuver Training Center and Muscatatuck Urban Training Complex are factored in, the overall economic impact of military spending on the state totals $8.3 billion and 56,600 jobs.

The $8.3 billion figure is a conservative estimate of the DoD and DHS impact in the state. The analysis could not include spending on equipment and supplies at military facilities like Crane or Camp Atterbury, because the information was not publicly available in the USAspending.gov database.

"Defense contracts have provided a well-needed shot in the arm to Indiana's economy, boosting the state's employment in order to meet the increased demand for defense goods and services," said Jerry Conover, director of the IBRC. "Given that 80 percent of contract dollars over the decade were dedicated to purchasing manufactured goods, U.S. defense agencies were key customers for many Indiana manufacturers during a period of overall employment decline in this sector."

"This report reveals that even though the national economy has struggled throughout the last decade, the state of Indiana has quietly established itself as an elite environment for defense-related companies to thrive," added Indiana Lt. Gov. Becky Skillman.

In 2001, Indiana was home to fewer than 400 defense contractors, who brought in just $1.8 billion in such federal contracts. In 2008, the awards of defense-related contracts peaked at a value of $7.8 billion -- nearly four times greater than in 2001. The value of defense-related contracts awarded has declined both in Indiana and nationally since then.

Over the decade, Indiana companies have attracted a total of $43.5 billion in defense-related contracts. The rate of growth in Indiana was nearly twice as fast as the increase in total U.S. defense contract dollars.

Timothy Slaper, director of economic analysis at the IBRC, noted that not only did the defense spending create jobs, but they were well-paying jobs in an era of stagnant wage growth. Defense contracts are heavily concentrated in high-technology, high-paying industries.

"Indiana's professional, scientific and technical service providers have seen a steady increase in recent years. Contract dollars to the industry more than doubled between 2005 and 2010," Slaper said. "This suggests that the DoD and DHS are contracting with Indiana businesses for services that require higher human capital, which is a welcome sign to Indiana economic developers attempting to complement the state's already strong manufacturing base."

Defense-related jobs in manufacturing had an average compensation above $90,000, which, in 2010, also was roughly $20,000 higher than the average for all manufacturing jobs in the state.

Indiana jobs directly supported by defense contracts had an estimated average compensation of $64,000 in 2010, compared to $44,600 average for all jobs in the state.

As a result, government revenues generated by defense contract payrolls produced $375 million in federal revenues in 2010 along with $240 million in state and local government collections.

An area for potential growth is educational institutions as defense contract recipients. The total value of all defense contracts awarded to universities in 2010 was only $16 million. Purdue University led the way with about roughly $8 million, followed by the University of Notre Dame and IU. More than half of contracts to educational institutions ($9.8 million) were designated for research and development, with another $4 million allotted for education and training services.

Below are more highlights from the report:

Indiana's four largest defense contractors claimed 71 percent of the state's 2010 contract dollars, led by AM General ($1.1 billion in contracts), Rolls-Royce Group ($733 million), Raytheon ($665 million) and ITT ($392 million).

More than 80 percent of Indiana's 2010 defense contract expenditures were concentrated in three counties: Marion, St. Joseph and Allen. However, defense spending also made significant contributions to some smaller counties, including Whitley (which ranked fifth among all counties), Lawrence (sixth) and Dubois (seventh).

Defense contracts are the dominant source of all federal awards to Indiana, accounting for 84 percent of all federal contract dollars in Indiana. Additionally, four of Indiana's top five federal contractors are in the defense industry.

With an employment multiplier of 2.1 in 2010, every 10 jobs at local defense contractors generated an additional 11 "ripple effect" jobs in other Indiana businesses.

Contract awards to minority-owned businesses in Indiana have skyrocketed since 2006, growing from a total of $27.7 million to a 2010 total of $139.1 million. The minority group to see the largest percentage increase in dollars awarded over this period was Hispanic-owned businesses, growing from $1.9 million in 2006 to $37.2 million in 2010. The largest overall recipient group, and the second-fastest growing in terms of contracts, was Asian/Indian-owned businesses, which grew their contracts from $10.7 million in 2006 to $81.8 million in 2010. Black-owned businesses more than doubled their contracts in four years, growing from $8.7 million in 2006 to $18.1 million in 2010.

The complete report is available online from the IBRC at http://www.ibrc.indiana.edu/. The study was supported by funding from the Indiana Economic Development Foundation and from Conexus Indiana and its corporate partners.